Health Care Companies at Risk as Private Equity Companies Continue their Practice of Buyouts and Bankruptcies – Following the Money for October 13, 2009

Posted on October 13, 2009


US and Chinese currenciesFollowing the Money for

October 13, 2009

by SamHenry

Today, Congress will reluctantly release the contents of the health care reform bill for public scrutiny (as well as for the edification of  voting Congressmen) as part of Obama’s campaign promise for “openness in government.”

Meanwhile, largely unregulated private equity firms proceed with their plans for further purchase of companies to bleed for funds and put into bankruptcy. Unbelievably, Health care companies and related services are the new business focus for their strategies.  Will this impact health care costs?

Small profit margin businesses such as the Simmons Mattress Company are, in this economy, no longer a good bet.  This week that company has been playing out the final stage in a buyout scheme that has put them into bankruptcy with their future at risk after over 100 years in business.

At a time when the President has voiced his determination to keep businesses in the US, US businesses are going under due to the currently “legal” actions of the private equity firms to line their pockets.  They are adding to the unemployment figures with their destruction of American companies that are the target of their activities.

This morning, on an historic day in the history of health care in this country, Reuters is reporting the following under the banner, Buyout firms shift focus amid debt worries: survey:

Almost two thirds of buyout firms are shifting to deals in defensive sectors such as health as they face the threat of losing control of their companies to banks, a survey by accountancy firm Grant Thornton has found.

Private equity firms are struggling with the debt they piled on their portfolio companies at the height of the boom, as a downturn in sales forces many firms into difficult discussions with the banks.

Healthcare and support services companies will be the most attractive to buyout firms as they search for deals that provide steady cash flow, Grant Thornton said on Monday.

“A growing number of private equity executives feel compelled to shift their focus to those sectors that are popular with the institutional investors that need to provide the finance for new acquisitions,” head of private equity, Mo Merali, said in a statement.

Some 64 percent of firms expect to shift their sector focus in the coming 12 months, with 55 percent expecting to focus on healthcare, pharmaceuticals and the medical sector.

Some 48 percent see business support, infrastructure and logistics as their busiest area, the survey found.

Three quarters of buyout firms surveyed expect to expand their portfolios through acquisitions over the coming 12 months, but an even greater number expect to run into difficulties with their existing investments.

Eighty-one percent of more than 100 private equity firms surveyed expect some of their portfolio companies to breach banking covenants.

“A significant proportion of respondents will (need) to refinance some of their portfolio companies and more than half of our private equity clients expect difficulties in achieving the refinancing,” Merali said.

Fifty-two percent of respondents anticipate difficulties when they come to refinance investments, while 18 percent do not expect refinancing problems.

(Reporting by Simon Meads, Editing by Lin Noueihed)

Meanwhile, Simmons Mattress Company struggles with their bankruptcy filing while their employees worry about their jobs in an economy already mired in the prospect of an ever increasing number of unemployed citizens drawing down the reserves of unemployment funds in states across the nation.

If the private equity firms are morally “bankrupt” in their actions, then the federal government is stretching the limits of its power in taking over private companies to “save” them.  Is the federal government in a position to lead in the matter of further fiscal reforms?

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Further reading:

VotingFemale Speaks! – SNL – Obama Accomplishments? Just 2, Jack & Squat (video); Update: SNL under attack From Yahoo- Fact Check Attack In Progress

Big Government – Dems scramble after warning from health insurers

Hot Air – Massachusetts goes for rationing? Update: Incentivizing profit over care?

Sister Toldjah – Health-care rationing coming to Massachusetts

American Thinker – Is there really a recovery on the horizon?

Moonbat Patrol – Come One Come All To the Obama Health Care Show, But Remember Wear Your White Coat!

Politico– Insurers face blowback after report